DEX platforms offer a fresh wave of opportunities, allowing users to transition between cryptocurrencies without the need for the mainstream centralised exchanges.
However, a lurking menace shadows these platforms: sophisticated AMM’s that practice front running. A common term for this in the crypto community is “getting hamburgered”. But what does it mean to get “hamburgered”, and how can you avoid it? In this piece, we’ll break down the mechanics of front running, its implications, and how you can sidestep its grasp.
Understanding Front Running
Front running, a prevalent tactic on DEX platforms, is triggered when a user places a buy order on platforms such as PancakeSwap or Uniswap. Astute bots, ever-watchful of new BSC transactions, pick up on this. Sensing an imminent price surge, these bots strategically place their buy order ahead of the original, only to swiftly offload their position right after the initial transaction. This swift in-and-out strategy is where the term “getting hamburgered” stems from, as users’ transactions are sandwiched between the bot’s actions.
Still don’t get it? Here’s an example
To truly grasp front running, let’s create an example with the hypothetical crypto, FluffyCatCoin. By analysing transactions on BscScan (a Binance Smart Chain ledger), one can notice a pattern:
Consistently, there are three simultaneous trades: the AMM’s buy, the genuine buy, and the AMM’s sell. On BscScan, latest transactions always feature at the top.
The two peripheral trades share identical address and volume. The AMM, in this scenario, doesn’t truly aim to retain FluffyCatCoin; its goal is a surefire profit.
In this instance, we observe the AMM purchasing and almost instantaneously selling its FluffyCatCoin, capitalising on minor price fluctuations.
Why Front Running is a Successful Strategy
What makes front running effective is the blockchain’s discrete nature. Instead of individual transactions, activities are batched into blocks.
A buy order on PancakeSwap sits among other yet-to-be-processed transactions, available for anyone with access to a full node. This pool is where the AMM operates.
Ensuring the Right Transaction Order
In our above example, transactions followed this sequence:
AMM’s buy.
Genuine buy.
AMM’s sell.
So, how does the AMM ensure the correct order? The answer lies in mining fees. Each blockchain transaction requires a fee, incentivizing miners to prioritise it. The AMM ensures its buy order (with a larger fee) precedes the original, while its sell order (with a smaller fee) follows.
Slippage and Shielding Yourself from Front Running
It’s distressing to realise that the AMM’s gains often translate to losses for the unsuspecting user. But there’s hope. A simple tactic to shield yourself is by fragmenting your orders. Minuscule profits discourage AMM’s, especially when transaction fees come into play. In general, orders below $250 fly under their radar. And then, we have slippage. In a nutshell, slippage is the gap between your expected trade price and the actual one. It’s all about flexibility and handling the volatile crypto game.
Why Slippage Can Save You
AMM’s Hate Surprises: By being flexible with your trade price (using slippage), you’re not serving your trade on a silver platter. It’s harder for AMM’s to predict and jump ahead.
Slimmer Profits for AMM’s: Front-running with low slippage means the bot’s gains shrink. After transaction fees? They might just be chasing cents
.
Slippage Pro Tips:
🚀 Stay Alert with Volatile Tokens: Some tokens are wilder than others. Be ready to adjust your slippage.
🚀 Goldilocks Zone: Not too little, not too much. Find that slippage sweet spot where your trade is secure, but you’re not overpaying.
🚀 Keep an Eye Out: If trades fail even after upping the slippage, it might be AMM o’clock. Consider trading when it’s quieter.
In conclusion, always stay on your toes. While front running is a shady tactic, being well-informed ensures you won’t fall victim to getting “hamburgered”. Also remember your friend Slippage. It’s not just a fancy word to impress people at parties, it’s a strategy.
